Question

Riley operates a plumbing business and this year the 3-year old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was $5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident, insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction?

A. $6,000
B. $14,000
C. $5,800
D. $4,600
E. $5,300

Answer 1

D. $4,600

Step-by-step explanation:

Riley's casualty cost deduction comes from the substraction between the adjusted basis, which is the net cost of an asset after adjusting for various tax-related items, and the amount the insurance paid Riley.